Episode #72: Climate Change Unplugged

How outraged should we be?

This week we take on one of the biggest, most complex topics in society and business today - climate change.

With bushfires ravaging Australia on the back of one of the longest droughts in our history, the evidence for climate change is mounting. So too is the awareness and anger of the Australian people.

This has driven media commentators, celebrities, and politicians alike to decry the sorry state of the planet. The vast majority of these are looking for someone to blame. 

However, many of our opinion leaders are ill-informed, simply regurgitating the populist view with little understanding of the complexities at play.

Based on my experience as CEO of an electricity generation business, and my time serving on the board of the Australian energy industry’s peak representative body, I attempt to bring some balance to this difficult topic.  

Remember, like any wicked problem, if it was easy it would have already been solved!

This episode isn’t just for leaders, so please share this episode with your network far and wide, and give them the opportunity to look at climate change through a different lens.

What would it mean for you as a leader, if you had the capability, the will and the confidence to deal with any challenge that comes your way?

If you love the podcast you're going to get so much value out of the program!

CLIMATE CHANGE UNPLUGGED: HOW OUTRAGED SHOULD WE BE?

Episode #72 Transcript

Hey there, and welcome to episode 72 of the No Bullsh!t Leadership podcast. This week's episode, Climate Change Unplugged: How outraged should we be? The most topical thing happening in Australia right now is the bushfire crisis, and it has global visibility. Fires rage out of control at catastrophic levels, and only a few brave souls stand on the line preventing the decimation of many of our regional towns. At the time of producing this episode, over 11 million hectares of bushland had been burned out and it's not over yet. I want to dedicate this episode to the many firefighters, paramedics, and volunteers who are giving their time and risking their lives to keep our community safe. I also want you to spare a thought for the thousands of people who've been displaced, lost everything they own or have had to endure the unbelievable grief of losing loved ones.

Now, as the title suggests, today I want to deal with climate change and particularly the leadership vacuum that's enabled us to get where we are today. It's a big topic for a short episode, but I'm going to give it a crack. I'll also hopefully provide some hope for the future. And this is called the No Bullsh!t Leadership podcast, not the Dancing Carefully Around the Elephant in the Room podcast. So, I'm going to give you my best effort here to drill into the real issues. If you live on the climate sceptic conservative right, you'll have to listen to some stuff that you're not going to like. Equally, if you live on the green socialist left, you will have to listen to some stuff that you're not going to like. But I challenge you to listen to this through to the end all the same. A critical competency for leaders is to suspend their confirmation bias in order to assimilate new information. This, as much as anything else, is the objective of this episode.

If you don't know me yet, just a little bit of background. I'm not an opinionated punter with strident views. I spent five years as Chief Executive of an energy business in Australia and three of those years on the board of the Australian Energy Council, the peak industry representative body. Now rather than unlocking all the nuances of this highly complex issue, I'll only have time to give you a sense of the complexity. I could talk for weeks about aspects that I only mention as one liners in this episode. But as well as testing your ability to reconsider your worldview, I hope this episode helps you to become better informed and more appreciative of the complexity of the issues at hand.

I'm going to start with the obvious question. Is climate change real? I'll then define the problem using a slightly different lens than the one you've been accustomed to looking through. I'll move on to the growing wave of climate activism. I want to give you some rationale for why our leaders in both business and government are dragging their heels and then I'll finish by briefly outlining the impact that Australia has on the world stage and what we need to do to move forward.

We need to develop a much better understanding of the climate change challenge before we can solve it. This is not a political issue and regardless of my personal political leanings I'm going to remain as neutral as I possibly can. Also, apologies in advance to our international listeners for the Aussie bias here. It is the market economy and political environment that I know best and it's also where the climate change impacts are playing out most severely at present with our bush fires. But I guarantee that those of you in the other 65 odd countries that we reach will undoubtedly get some key takeaways from this episode. So, today's episode is a little longer than usual. You might want to grab some popcorn and settle in.

Is climate change real? There is absolutely no doubt in my mind that climate change, induced by carbon concentrations in the atmosphere, is real. There is simply too much evidence to support it. There are, of course, some natural factors, but predominantly it's a result of human activity. Burning fossil fuels for energy, making steel to build our cities, manufacturing the goods that we all use, driving automobiles, flying in jet airliners, deforestation through logging. The list goes on and on. To what extent is this impacting changes to our weather patterns and the number of catastrophic events we're seeing? Short answer, it is massively impacting them.

There are undoubtedly some other factors as I said, but this is where the difference of opinion starts and leaves the door open for our climate sceptics. Now their defence goes something like this: "We've only been measuring this for a really short period of time in the scheme of the life of the planet. It's just part of the natural cycle. We've always had drought, storms and bush fires in Australia. This is just a bad year." Yeah right, or ten as the case may be.

Now, I'm a big advocate of risk mitigation, so my message to the climate sceptics and deniers is this: Okay, for whatever reason you've decided to defend the indefensible, which is your choice, but just suspend your disbelief for a moment. What if it's actually true? What if carbon emissions are having the impact that the overwhelming majority of the world's scientists belief? Just on the off chance, wouldn't you want to take decisive action right now to mitigate the risk for future generations? With this risk mindset in play, even the most vehement sceptic should be able to understand my mantra, which goes something like this: We need to decarbonize our environment as quickly as we possibly can without either decimating the economy or plunging us back into the dark ages. But more on this later.

Let's spend a little time looking at the climate change problem and see if we can apply a slightly different lens. I have four points here and I want you to think carefully about these and consider how they might impact your existing beliefs on the problem. Let's face it, a lot of the rationality gets lost in the emotion of this debate.

So, my first point. There's a good reason why we are where we are. The carbon concentrations in our atmosphere and not there because we just decided it would be a good idea to wantonly pollute our planet. These are the unavoidable historical byproduct of the headlong march to prosperity and the standard of living that we in the developed world have come to take for granted. As I said before, we enjoy the benefits that come from this. Burning fossil fuels has provided cheap and reliable energy that's driven the growth of our industries and economies. Manufacturing the almost infinite array of goods from watches to glassware to computers and mobile phones. Being able to get anywhere in the world quickly and cheaply through commercial air travel. Civilization has its downside and that downside is being left to the environment.

The pollution of our atmosphere didn't happen overnight. It's been happening since the start of the first Industrial Revolution in the late 18th and early 19th centuries as manufacturing technology became ubiquitous in the US and Europe. Now, albeit back then, this was happening in a much slower rate. But when it comes to our willingness and preparedness to respond, we have been excruciatingly slow as a society on the whole. The Kyoto Summit, that first hit targets for global reduction of greenhouse emissions took place in 1997. That's 23 years ago and world leaders still struggle to come to terms with how to proceed every time a new summit is held. The most recent impasse being in Madrid in 2019.

It's only really in the last handful of years, as the actual effects of climate change have become too obvious and savage to ignore, that we've really started to take notice. And even now, many people prefer to put their heads in the sand. The truth is, we find it difficult to join the dots on cause and effect. Don't be too hard on yourself, this is human nature and it's called optimism bias. This is our tendency to think it won't happen to me. That's why even though 67% of smokers die from smoking related diseases, most smokers believe they'll be the lucky one in three who doesn't. It's why people who engage in extreme sports with high fatality rates think they understand and control the risks better than others doing exactly the same sport. The list goes on. Perhaps this explains why we've come around so slowly to the obvious conclusion on climate change. It won't happen to us. Well, now we can clearly see that it will and it is.

The second point I want to make for how we got to where we are, is that we've painted ourselves into a corner. There are no easy solutions to our transitional problem and I believe it is a transitional problem as we learned how to effectively move to a zero emissions economy. In the energy sector, we talk about the Energy Trilemma. There are three competing forces: reliability, sustainability and affordability. You can't impact one without flow and effects to the others. So, as we push for greater sustainability through emissions-free energy, the unintended consequences of increasing prices and reduced reliability of the system are felt. Funnily enough, people haven't been prepared to accept these flow on effects. Although this is changing now, for many years people had a pretty self centred view of this stuff. "I want my energy to be green, but only if I don't have to pay any more for it." This is not theoretical. In terms of the customer sentiment, the large energy companies are researching this stuff constantly. In terms of the actual competing forces, the Great Renewables Experiment in South Australia has demonstrated amply the relationship between cost, reliability and environmental impact.

With some of the highest penetration of wind energy anywhere in the world, South Australia has also become one of the most expensive regions in the world and the system there suffers from reliability issues that require constant vigilance and management. In terms of reliability, let's face it, in the developed world, we've become accustomed to the convenience of delivered power. We hit a switch and we expect to get light or we expect to get air conditioning. We aren't prepared to tolerate anything less than a hundred percent reliability and we shouldn't have to go backwards. It's one thing to never have had something, but another altogether to take something away that's always been there. Humans don't respond well to this. This is why mapping our path through this transition is hard. We can't do it quickly without some pain and we need to choose where that pain will be felt. This is one of the factors that has enfeebled many of our politicians to inaction. They don't want to be the ones to give voters the bad news.

The third point and a real social issue to think through in terms of global solutions, is that we're not all starting in the same place. Think of this problem from the perspective of someone living in developing countries in Asia and Africa. Developed countries in which most of our podcast community live, have fuelled massive economic growth and prosperity from the availability of cheap, plentiful fossil fuel based energy. Now we're telling the rest of the world "no more carbon". Living in these developing countries, you could be forgiven for seeing this as the privileged countries denying you the same standard of living that we already have. It's like, "You guys got rich while screwing up the planet and now you expect us to pay the price for that by leaving us in poverty." The exploding middle classes in India and in China especially, could be forgiven for allowing this to colour their perspective.

And finally, point four is the natural foil to our sense of urgency. We're generally quite slow to adopt new technologies. The technology is there and improving rapidly, but we've shown ourselves to be stubbornly slow in adoption. Electric vehicles are a great example. The technology has been there for a number of years, yet still, the penetration of electric vehicles as a percentage of overall passenger vehicles worldwide is less than half a percent. And while demand is low, prices remain high. There are predictions this will change in a wave of mass adoption in the next 10 years and this will be eventually the new normal. Until then, we're destined to continue our love affair with oil.

Let's have a quick chat about climate activism. The recent uptick in widespread climate protests, is finally bringing some real awareness to the issues at hand. Activism in any field is useful to raise general awareness. Unfortunately, climate activism is long on outrage, short on solutions. Remember, as is the case with any wicked problem, if this was easy it would have already been solved.

But there's one important form of activism that's making a real difference right now and that's investor activism. It's bringing real change to the business landscape because company executives have to pay attention to the mood of their shareholders and particularly if they're going to be granted their big executive bonuses. Many major providers of both debt and equity funding now have strict charters about the types of activities that they will invest in, or not as the case may be. This is forcing even the most hardened 'what's in it for me' type executives to consider the environmental and social impact of their firm's activities. But the obvious solutions still appear to allude us as we can't get a sensible debate going amongst the dozens of rival factions. They need to agree to put their self interest aside and accept the short term pain of implementing solutions that will tackle this problem head on. This is amplified by the overwhelming mass of misinformation in the public domain about what these solutions might be.

For example, the green left would have this belief that building a shit tonne of wind and solar farms will solve all our problems. This is patently untrue. Renewables are a really important part of the solution, but not the entirety of the solution and I really think it's worth explaining why. There is a predictable dynamic that occurs when too much renewable energy is introduced too quickly. Once again, this is not theory. It's basic supply and demand economics.

When the elements like sun and wind are favourable, a massive supply of cheap, clean energy is produced. Prices plummeted those times and the other forms of power generation that are operating then become unprofitable. Now you simply can't switch off coal fired power stations when you want, even if it costs you more to produce the energy than the market is paying you for delivering it. So, the coal plants that are essential to supplying the system operate at a significant loss for much of the day. Only to try to recoup those losses when the peak demand comes. Over time, when these ageing power stations can no longer make money, they are decommissioned and this reduces the longterm supply in the market. When this happens, prices rise rapidly due to the shortage of energy at critical times. This is a really hard roundabout to get off once you're on it.

Here's a fact: renewable energy is cheap and getting cheaper all the time. However, we can't look at this in isolation. To make the overall system work, we need to have other forms of generation in place for when the sun and wind don't cooperate. The gaps left by renewables are filled with more traditional sources of energy. The overwhelming majority of which is fossil fuel based. Now, if those forms of generation can't make money, they withdraw from the market. Again, prices rise, reliability reduces, and we've spoken about how tolerant people are of the Energy Trilemma.

Let's then look at coal fired energy. It looks pretty cheap too, until you price in the social cost of the environmental impacts, which isn't being done in Australia at present. This is why I'm a massive believer in the need for some sort of carbon pricing. Without it, there is simply insufficient economic incentive for firms to clean up their act and stop polluting. With it however, the market players are incentivized to remain competitive by finding the lowest overall cost solutions, which once you have a price on carbon, favours emission free energy. The problem is, at least in Australia, a price on carbon has demonstrated itself to be political suicide and we're going to talk about this a little further down in the episode. But as I've said, this is a transitional problem. Technology will largely overcome these problems in the next 10 years. In the meantime, we need bridging technologies. Until we are able to provide substitute solutions, we have to find a way to fill the gaps left by renewables. Once again, the green left would have us believe that the technologies are already there to solve the problem, but they're not.

Battery storage is often quoted as a 'ready now solution', but we're still a long, long way for industrial scale storage. The so-called largest battery in the world that was built with Tesla technology in South Australia a few years back, works really well for maintaining network stability and reliability. And this was critical after the South Australian experiment in renewables. But it's no answer to producing the sort of energy needed to fulfil usage demand. We need more fast start plant to fill the troughs when the wind and sun don't produce.

Now, pumped hydro electric storage is a very promising, commercially proven technology and if you can make the pumping work from renewable sources, it's also super clean. Tick, let's do more of that. But even gas plants, which are fast start and unlike coal plants, can actually be switched on and off fairly easily are needed. Although gas is a fossil fuel, it produces about half the greenhouse emissions of the newest and cleanest coal fired stations, so it takes us in the right direction. Both gas and stored hydro can produce energy on demand regardless of the weather.

Now given the economic and social complexity of these issues, if I had any influence in this regard, I'd send our policymakers a brief note with the following advice and I'd have five points that I'd send them.

1. Whack a big price on carbon and make the emitters pay. This could take a number of forms, a tax, an industry based scheme, a cap and trade system, etc. Doesn't really matter, but the fastest way to change anyone's behaviour is to hit them in their hip pocket. And this applies even more so to commercial businesses run by highly incentivised executives.

2. Invest the proceeds from the carbon tax for want of a better expression, into the commercialisation of the technologies that will be our future, whatever they happen to be. So, you've got energy management systems, next generation storage solutions, carbon capture and storage and so forth.

3. Make sure the companies that provide systems stability and security of supply, which cover the gaps left by renewables, are financially rewarded for doing so. This makes it worth their while to keep operating in this critical role regardless of how often they're called upon.

4. Stop pissing away taxpayer's money on things that are going to happen anyway. Great example of this is the government subsidies on rooftop solar systems.

5. Stand back and watch the market work it out at the lowest economic cost.

Who said this was hard?

Why aren't government leaders responding to the climate challenge more quickly? This is a pretty easy one, but forgive me if I sound just a little cynical. The number one goal for the vast majority of politicians is to get re-elected. Conservative government in Australia relies on funding and support from business interests like large mining companies and heavy industry. Socialist government in Australia relies on support from green interests. This creates a philosophical divide that's really difficult to bridge and with it, has created a policy vacuum in Australia that stifled investment in energy supply solutions for well over 10 years. Both flavours of government recognise the role that our natural resource businesses play in the overall prosperity and standard of living that we all enjoy. And quite rightfully, both sides are cautious about biting the hand that feeds us. But let's not be too hard on the politicians. After all, they are simply a mirror of us.

There was a time in Australia a number of years ago when we actually had a carbon tax in place. Now that government was voted out largely because people were made aware of the cost it was having on them individually and they weren't prepared to pay it. Back then, and this was only 2013, the belief, evidence and anger about climate change was clearly not obvious enough for many Australians to overcome their own optimism bias. The view was pretty clear. We want the government to fix the problem, but it's not our problem, so the solution shouldn't affect us either. Some even said this while trousering their generous government subsidies.

Now in terms of political leadership, nothing of significance has ever been achieved by a government without taking some risk and making unpopular decisions that are in the longterm interest of the country, pretty much like any leadership. Soft populous governments always fall eventually, leaving a messy cleanup for the next batter who steps up to the plate. The Australian economy, however, is the envy of the world. Almost 30 years of uninterrupted growth and prosperity. This has come off the back of some incredibly courageous and farsighted policy decisions made against the flow of public support in many cases. The Hawke government in the 80's open up the Australian economy by floating the Australian dollar, eliminating trade tariffs and deregulating the financial sector. The Keating government in the early to mid 90's continued this reform by introducing compulsory superannuation and privatising some key commercial assets that the government still owned like Qantas. And the gun control legislation introduced by the Howard government in 1996 was an incredibly courageous stand by the Prime Minister and state premiers that has since saved countless Australian lives. Make no mistake, the wicked problem of climate change will take at least this level of courageous leadership if we are to map a viable path forward.

Talking of leadership, the bush fires in Australia have seen a lot of anger and hatred direct towards our current prime minister Scott Morrison. He copped an absolute caning for taking his family to Hawaii on a holiday just as the bush fires were really starting to hit a critical flashpoint. Now, I get it. He's not making himself easy to like. However, I want you to consider this and keep a balanced view of the guy. I'm going to give you a look at Morrison through a leadership lens, not through a political lens. The leadership he has displayed has been appalling by any measure. Make no mistake. But don't be too hard on him for his jaunt to Hawaii. We have no idea what drove this decision or when it was made. For all we know, his marriage may have been on its last legs and this was him responding to a marital ultimatum. I don't know. I'm just making this bit up. But one thing's for sure, there's never a good time for the CEO to take time off from the job.

It would also serve us well to remember that we have all sorts of social crusaders calling for better work life balance. Does that not apply to leaders? Let's face it, you can't pick and choose this principle when it suits you. And look, he'll no doubt continue to be punished for those lapses in judgement . So you can all cool your jets. Leaders in the public eye don't often get away with this sort of stuff.

Not withstanding that, the decision to go on holidays may have been a poor one, but in my view, that's not the real problem with his leadership. For start, he didn't have a strong and capable deputy who could act in his place to take charge while he was away. And there's that leadership pipeline thing again. And since Morrison returned, he's also been excruciatingly slow to react to the unfolding catastrophe. When he interacts with people in the disaster zones, he fails to read the play and he completely fails to connect with them. And regardless of his recent shift in rhetoric, he clearly doesn't get the link between his government's climate policy position and the popular sentiment that lays the blame at the current government's door. Remember though, he is the last in a long line of governmental failures on energy and climate policy over more than a decade. He just happened to be the guy left without a chair when the music stopped. There's still time for Morrison to repair this, but it will be a better escape act than Houdini if he can pull it off. Like I said, this will take a level of courageous leadership we've simply become unaccustomed to seeing.

On the upside and there's always an upside, we've seen a leader emerge from this crosses who embodies everything we want to see in the people who are there to lead us through these difficult times. Shane Fitzsimmons, the commissioner of the New South Wales Rural Fire Service has been an absolute revelation. He communicates with clarity and simplicity. He knows his shit and he's clearly well briefed, but it's obvious that he trusts his people to do their jobs and he doesn't get in their way. He's completely in touch with the people demonstrating deep empathy and connection. He clearly has an incredible resolve and commitment to his daunting task. And he remains calm under pressure, providing levelheaded and composed decision-making amidst the chaos. An example of this leadership is exactly what was needed and it clearly didn't come from the ranks of our politicians.

Let's just finish by looking a little more closely at the impact that Australia has on the world stage. Australia is a small country that punches above its weight. According to the United Nations, with a population of about 25 million people, Australia ranks 55th in the world in terms of its population size. It is less populous than the Ivory Coast, Nepal and Madagascar. But in terms of land area, it ranks number six and this of course presents some of its own issues. Economically, according to the World Bank, Australia ranks number 13 in terms of its GDP. So, the 55th most populous country in the world is the 13th largest economy. That's really the definition of a country punching above its weight.

And let's look at our carbon emissions. Based on our small population size, Australia has some of the highest carbon emissions per capita of any country on the planet. Regardless of which source you consult, Australia is generally ranked in the top two or three for this measure. Clearly we have an energy hungry economy and a strong reliance on fossil fuels, electricity, automobiles and so forth. However, let's think about the overall global impact of our physical emissions. And this is a global problem, not a domestic one as we know. Australia's share of global emissions is around 1.2%. I'm going to make two really important points about this to finish. The first point is that the actual physical impact of our high per capita emissions doesn't have a material effect on global warming. It doesn't. Over 50% of global emissions are produced by three countries: the USA, China and India. In Australia, if we could wave a magic wand and cut our carbon emissions in half tomorrow, it would have no discernible effect on global warming. It would reduce new emissions in the atmosphere by about half of 1% in total. It is completely immaterial. If we did cut our emissions tomorrow, however, it will create vast economic loss, massively increased costs for households and businesses and induce a level of instability in our electricity supply system that will be completely unmanageable. It would basically put a wrecking ball through the Australian economy.

Now that's fun and interesting and it's a useful fact to bear in mind, but the far more important point that I want to make is this: Australia is a country that punches above its weight. It has a leadership role to play in establishing, agreeing and meeting emissions reduction targets. It has a leadership role to play in technology development and commercialisation. And it has a leadership role to play in influencing other countries like our strong allies in the US, to put the future of the planet ahead of their domestic interests.

So, here's my call to action for our political leaders. There is a workable path forward, but implementing it will piss a lot of people off on both sides of the political divide. That's fine. Get used to it. Forget your self interest and push forward courageously anyway. You need to make the difficult choices like some of your predecessors have made and show the leadership that the rest of the world is compelled to follow. If you do so, history will remember your legacy favourably, even if you find that your political career is prematurely curtailed and that you have to jump on Seek.com to find consulting and board opportunities after the next election. Leadership is leadership. Respect before popularity people.

Alright, so that brings us to the end of a rather lengthy episode 72. I think this episode is one you can share more broadly than just with your leadership network because there's so much stuff that we need to know, in order to solve this climate change problem. Thanks so much for joining us and remember at Your CEO Mentor our purpose is to improve the quality of leaders, globally. I look forward to next week's episode in which we'll resume normal programming.

Until then I know you'll take every opportunity you can to be a No Bullsh!t Leader.

And guys, don't forget to preregister for Leadership Beyond the Theory at courses.yourceomentor.com. If you love this podcast, you are absolutely going to love the program and get so much value out of it, so I really encourage you to go and check it out. Alright, we'll see you next week.

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